On January 22nd, 2019, a federal district judge certified a class of at least 28,000 participants and beneficiaries of the Cornell University Retirement Plan, consisting of the Employees of the Endowed Colleges at Ithaca Plan and the Cornell University Tax Deferred Annuity Plan, in Cunningham et al. v. Cornell University et al., No. 1:16-cv-06525 (S.D.N.Y., Jan. 22, 2019).

Consistent with a number of suits for underfunded and poorly performing university pension plans, the plaintiffs’ complaint asserts the fiduciaries did not manage the plans prudently, underperformed, and accrued excessive administrative fees in violation of ERISA Sections 404 and 406, 29 U.S.C. §§ 1104, 1106.

Each plan holds more than a billion dollars in assets, a fact which the plaintiffs claim affords the plans and their fiduciaries “tremendous bargaining power in the market for retirement plan services.” While participants are allowed to designate which of the available investment options to invest their individual accounts, the Plans’ fiduciaries choose the investment option offerings, which as of December 2014 averaged 300 separate investment options between the two plans.

The defendant fiduciaries, including Cornell University, the Retirement Plan Oversight Committee, the plan recordkeepers – TIAA-CREF (Teachers Insurance and Annuity Association of America) and the College Retirement Equities Fund) and Fidelity, and CAPTRUST Financial Advisors, had previously filed a motion to dismiss which was denied in part.

In denying the defendants’ motion to dismiss, the federal court held that the plaintiffs’ amended complaint plausibly alleged:

All defendants, other than CAPTRUST, failed to monitor and control the plans’ recordkeeping fees and failed to solicit bids from competing recordkeeping providers on a flat per-participant fee basis, and failed to determine, in a timely manner, whether the plans would benefit from moving to a single recordkeeper; and

All defendants unreasonably continued to offer as a fund option the CREF Stock Account and TIAA Real Estate Account, despite high fees and poor performance, selected and retained funds with high fees and poor performance relative to other available options, and selected and retained high-cost mutual funds instead of identical lower-cost funds.

In ruling on the motion to dismiss, the court also held that the plaintiffs had plausibly alleged that Cornell University and Mary G. Opperman, the head of the Oversight Committee, failed to monitor the performance of their appointees to the Committee and failed to remove appointees whose performance was inadequate as related to selecting and retaining funds.

In certifying the class, the court defined the class as “All participants and beneficiaries of the Plans from August 17, 2010, through the date of judgment, excluding the Defendants and any participant who is a fiduciary to the Plans.”

The court held that the plaintiffs had demonstrated individualized losses for each count which survived the motion to dismiss, noting that the Second Circuit has previously held that plaintiffs who assert claims in a derivative capacity on behalf of a retirement plan establish sufficient injury-in-fact by alleging injuries to the plan itself, regardless of whether the plan is a defined benefit or defined contribution plan. Nor was standing predicated on a plaintiffs actual purchase of a financial instrument – as long as the defendant’s conduct in question implicates the same set of concerns, a plaintiff can bring claims on behalf of the absent class members who had purchased said instruments. (“Personalized injury-in-fact requires named plaintiffs to demonstrate individualized losses in the form of some amount of financial damage; it does not require harm to be shown from investment in each fund that makes up an overall plan.”).

In adjudging commonality, the court noted that the common contention of the classes’ action was that “the investment lineup made available to all participants violated ERISA… [and that] the centralized administration of [the plans] is common to all class members.” This commonality holds regardless of the number of individual funds available in each plan, as the allegations go to the defendants’ prudential oversight and failure to take actions that would result in lower costs.

Also of note, the court refused to credit defendants’ argument that individualized statute of limitation calculations negated the “many other common issues in this case.”

Regarding typicality, the court held that “[e]ach plaintiff’s claim and each class member’s claim is based on the same legal theory and underlying events, namely, that CAPTRUST and the Cornell Defendants breached their duty of prudence by imprudently selecting, administering, and reviewing the Retirement and TDA Plans’ investments, recordkeeping fees, and the Committee’s delegates.”

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